Change in Profit-Sharing Ratio Among Existing Partners
CBSE Class 12 Accountancy | 2026–27
Why Does the Ratio Change?
Existing partners may agree to redistribute future profits and losses. Because the economic rights change, the accounting treatment must recognise sacrifice, gain and the value of goodwill.
1. New Ratio
Write every partner’s new fraction before converting it into a common ratio. Never compare ratio numbers directly when the denominators differ.
2. Sacrificing Ratio
Sacrifice = Old share − New share. A positive result indicates that a partner gives up part of the profit share.
Example
A and B share 3:2 and change to 1:1. A: 3/5 − 1/2 = 1/10 sacrifice. B: 1/2 − 2/5 = 1/10 gain. Therefore goodwill compensation, if applicable, moves from B to A.
3. Goodwill Adjustment
When the new arrangement causes one partner to sacrifice and another to gain, the gaining partner compensates the sacrificing partner according to the applicable goodwill adjustment.
4. Revaluation Account
| Change | Revaluation effect |
|---|---|
| Asset increases | Credit |
| Asset decreases | Debit |
| Liability increases | Debit |
| Liability decreases | Credit |
Revaluation profit or loss arising before the new arrangement is transferred to existing partners in the old ratio.
5. Reserves and Accumulated Profits/Losses
Items accumulated before the change are normally adjusted among existing partners in their old ratio.
6. Capital Adjustment
If capitals are to correspond to the new ratio, determine the agreed total capital and multiply it by each partner’s new fraction. Compare this required amount with the existing capital and settle the difference as instructed.
🖼️ Complete Decision Flow
Exam Practice
- A:B = 3:2 changes to 1:1. Calculate sacrifice/gain.
- Prepare a Revaluation Account from five asset/liability adjustments.
- Calculate goodwill compensation where total goodwill and gaining share are given.
- Adjust reserves and capitals and prepare the revised balance sheet.
MCQs
- Sacrifice = old share − new share. Answer: True.
- Revaluation profit is normally shared in the old ratio. Answer: True.
- An increase in an asset is credited to Revaluation. Answer: True.
- An increase in a liability is debited to Revaluation. Answer: True.
- A gain in profit share can require goodwill compensation. Answer: True.